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Valentin Lazea: July to register highest inflation level in 2008

The inflation target for 2009 could be missed because of the wage hikes.

July is the month in which the inflation rate will reach its peak in 2008, Valentin Lazea, the chief economist of the National Bank of Romania (BNR), stated on Monday for the Money Channel. However he avoided offering concrete inflation figures before the publication of the Central Bank’s report, a publication scheduled for next week. ‘I won’t reveal BNR’s exact forecast figure because it will be included in next week’s report on inflation. Anyhow, the forecast will be revised upward from the previous forecast of 6 per cent. So I won’t give you the exact figure, but the inflationary pressures are growing’ the National Bank of Romania’s chief economist stated. According to him, the wage hikes in 2008 could negatively affect the inflation rate in 2009, so that there is the danger for the inflation target for 2009 to be missed. ‘What I tell you does not represent the National Bank’s view; I don’t think there is an official point of view. Taking into account that this scheme will work and that for 6 years the minimum wage will go up by 17 per cent per year, hence much faster than labor productivity, while the medium wage will go up by 8 per cent per year. I think that this scheme has two shortcomings: any hike in the minimum wage will also hike the medium wage because the principle of communicating vessels is at work here; the BNR calculations show that such a hike would lead to an inflation rate approximately 1 per cent higher next year’ Lazea added.

The National Bank of Romania’s chief economist considers that in case the wage policies continue to side-slip, there is the risk endangering the inflation target for 2009, a target that stands at 3.5 per cent +/- 1 per cent. ‘Since I told you only the initial effects of the measure that has already been adopted, of course every percentage point weighs heavily’ Lazea added. Moody’s estimates a 9 pc inflation rate and an economic growth of 4-6 pc Kenneth Orchard, Moody’s chief analysts on the Balkan region, has stated yesterday for The Money Channel that he does not expect a too steep reduction of the inflation rate this year. ‘We have revised our estimate and I believe it stands somewhere around 9 per cent’ Kenneth Orchard said.

The Moody’s specialists do not expect a significant reduction of the inflation rate in Romania this year. ‘It is possible to have reached an inflation peak, but we are not expecting a quick drop’ Moody’s analyst added. The economic growth will nevertheless continue to register a high level in Q2 of the year, however it would slow down in the second half of the year, Kenneth Orchard forecasts. ‘Closer to 7 per cent than to 6 per cent. We cannot state exactly when the slowdown will stop, but we expect it to stand somewhere at 4-5 per cent at the end of the year’ the Moody’s analyst explained. The finance minister Varujan Vosganian declared yesterday in an interview to Reuters that Romania should further count of a quick economic growth, in order to avoid the social tension and reduce the differences of living standard against most of the EU citizens, in spite of the risk of macroeconomic overheating. The quick advance of GDP, based on consumption has determined the intervention of several officials of the National Bank, who showed that such a situation induced several dangers regarding the long term economic stability. “We all speak about overheating. Nobody has discovered another solution to fill up the gaps than the big growth of GDP,” Vosganian said. The same minister pointed out that “it is easier to be poor outside the (European – editor’s note) Union than within it.” “The pressures are very high because the Romanians must compare themselves with the neighbouring countries,” Vosganian continued. The International Monetary Fund estimates at USD 12,300 the GDP per capita this year in Romania, subject to the purchasing power.

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Tags: rsquo inflation lsquo moody romania national lazea bnr

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